Until Seth Klarman said it out explicitly, i haven't been aware that my investing behaviour has changed quite a bit over the last 2 years after being down by about 50% for my personal portfolio. Two years ago, i could be said to be fearless, knowing that i'm committed for the long run - therefore as long as i pick good companies, i'll do fine in the long run.
However, after seeing some companies you own plummet over 50%, your behavior changes. I managed to raise some long term debt from family members to allow me to average down in this market. This was what Xin Hong and I talked about in early 2007 (before the whole financial crises started to happen) that we need to stay committed to our long plan. After i have my cash in hand in late november, i committed a portion of it to the MSCI world index monthly for the rest of the time until i graduate. The rest is supposed to be deployed into individual stock picks. HOWEVER, i have been sitting on this warm pile of cash earning next to nothing for the past 4 months.
I could have justified my behaviour as 'i know the market is going to plummet further, so i stayed on cash...i could show you the charts if you want...' That would of course be a blatant lie.
The truth is that i'm afraid that i'll be wrong again, and there's also the pain avoidance behavior that prevents me from logging into my brokerage account to see the loss amount. Reviewing my individual stock positions, it is amazing how the market help u reduce your stock holding in financials by slashing their value by over 75% and the more defensive stocks by less than 40%.
Be fearful when others are greedy, said Buffett. I'll be the first to admit that this very profitable strategy is very hard to follow psychologically. Therefore i believe for the majority of us, we should simply commit ourselves to a long term portfolio with diverse asset mix, invest monthly, and rebalance (semi) annually.
But I hope i can do better. If intrinsic value has fallen by 20% over the last year and stock price has fallen 50%, if i liked it last year, i should LOVE it this year. Its hard, but i'll darn well try.
1 comment:
Hi,
This is a lot of pain I went through after the 2000 stock market crash.
But take it as a lesson. As Nietzsche said, 'Pain is a mnemonic device'.
Today, I would recommend to do the following :
1) hold only the stocks you would be ready to buy today. Sell the others and put the money on the ones you still like.
2) Invest only your own money, and money that you won't need for the next years.
3) Never try to recover your losses by doubling your bet on a tricky investment.
Yours,
Raphael
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